Printers have historically been high audit candidates by the Board of Equalization. The existing Regulation (1541) mandates that the printers are consumers (and therefore must pay tax on the purchase) of printing aids unless the printing aids are separately billed to their customers. Printing aids include dies, lithographic plates, artwork, color separation negatives flats and any other properties purchased for use in the preparation of printed matter to be sold. This requirement has left many printers with large unexpected sales tax liabilities after the dreaded sales tax audit simply because they were not aware of the rules.
A new proposed Regulation makes significant changes to the tax application of printing aids and if passed will save many printers a lot of money and unexpected exposure from audits. The proposed Regulation now allows printers to purchase printing aids for resale without the requirement of separately stating them on the invoice to the customer. This also means there are many unclaimed tax refunds.
In relevant part, proposed Regulation 1541 states “in recognition of the unique utility that special printing aids have to sales of printed material, and the need to avoid burdening businesses with unnecessary paperwork, the following presumptions shall apply. With respect to sales of printed material ultimately subject to sales tax, or sales to the U. S. Government, it shall be presumed that the selling price of the printed material includes the selling price of the special printing aids and that title passed to the customer, irrespective of whether or not the printer separately itemizes the special printing aids. It shall be further presumed that the printer, or other reseller, discussed in the following paragraph made no use of the special printing aids prior to their sale. Accordingly, the printer may purchase the special printing aids for resale.”
“Ultimately subject to CA sales tax”, means either the printer’s sale of the printed material and special printing aids is subject to CA sales tax or is an exempt sale to the U. S. Government, or if the printers sale of the printed material is for resale, a subsequent sale of the printed material and special printing aids is subject to California sales tax or is an exempt sale to the U. S. Government.
This is not only a significant change in the Regulation but also uniquely includes a taxpayer friendly explanation. Could this be a preview of things to come? Lets hope so. Anyway, back to the specifics, I did note that this exemption is not available for out of state sales. In other words, if a California printer buys printing aids in California and uses them to print in California it would seem they are subject to tax even though the printed matter is shipped out of state and is exempt as an interstate commerce sale. Also, if a printer does not want to give up title to the printing aids he can add a statement on his sales invoice to that effect. By doing so, however, he will be the consumer of the printing aid and will need to pay tax on the cost. Color separators are also granted a similar exemption on items they purchase. These items include filters and screens, trial proofing materials, disposable lithographic plates, and developing chemicals. Title to these items will be deemed to pass to their customer prior to use just as described for printers above, and therefore can be purchased for resale.
The proposed Regulation goes on to exempt the sale of camera ready copy containing text only or text and clip art in the form of a paste up, mechanical, or assembly or a camera ready reproduction of such.
These changes are significant to our printer clients and I will keep you posted, once they become final.
